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HP CEO Whitman: Turnaround Efforts Made Split Possible

The company is stronger now than it was three years ago, CEO Meg Whitman says, though analysts say challenges still abound.

Hewlett-Packard, the tech giant that has seen its share of struggles over the past few years, with the contraction in the global PC market and the rapid changes in the data center driven by such trends as mobile computing and the cloud, will look significantly different a year from now.

HP executives on Oct. 6 confirmed reports from over the weekend that the company will split in two by the end of its fiscal year 2015 next fall, with one company housing the PC and printer businesses and the other the enterprise solutions and services offerings.

They also will have fewer employees. Along with reorganizing itself into two companies, CEO Meg Whitman and Cathie Lesjak, executive vice president and CFO, said during an early-morning conference call with investors, analysts and journalists that HP—which has over the past year announced as many as 50,000 job cuts—will slash another 5,000 positions. And Whitman could not guarantee that the latest round of layoffs would be the last.

The announcement is fueling questions about the effectiveness of the five-year restructuring plan Whitman introduced in 2014, particularly in light of the company's announcement earlier this year that revenues for fiscal year 2015 would be relatively flat and the CEO's insistence over the past couple of years that—despite the ongoing drumbeat from some analysts that the company should shed its PC business—that HP worked better with its broad array of business under the same roof. HP was "better together," Whitman often said.

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However, during the conference call and subsequent media interviews, she said that the timing on the split was right because of the success of the turnaround effort, pointing to the improved financial numbers, the growing innovation efforts and the new leadership at HP.

"It is the right time now, and it wasn't when I first got here," Whitman said during an interview on CNBC. "I don't even think it was a couple of years ago."

HP has now reached the point where there are two strong businesses that can go out on their own.

"They go after quite different market segments, and we would have the opportunity to align rewards and results [and] to respond to customer needs faster with these two big companies."

The PC and printer unit—the two businesses were merged into the Printer and Personal Systems group last year—will become HP Inc. The company's enterprise business—from servers, storage and networking to cloud and services—will be called Hewlett-Packard Enterprise. Whitman said the two companies will benefit from continuity in leadership: She will be CEO of Hewlett-Packard Enterprise and board chairman of HP Inc., while Dion Weisler, executive vice president of HP's printers and PC unit, will be CEO of HP Inc. Current HP Director Patricia Russo will be chairman of the enterprise business.

Whitman and Lesjak said the two companies each will start with businesses generating $57 billion to $58 billion in revenues.

Patrick Moorhead, principal analyst with Moor Insights and Strategy, said HP's move could work. HP officials for the past few years have talked about the synergies having all the businesses in the fold has allowed, but beyond purchasing power in the supply chain, there is little to back that up, Moorhead told eWEEK. After "giving it their all to find synergies in the last three years under Meg, this could be good for them," he said.